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What are Government Securities?

Government Securities are securities issued by government or its nominated agencies (but do not include PSUs). Securities issued by Central Government are considered to be the safest investment option for that country as repayment of principle and interest is guaranteed by the government. Since, these are considered to be safest and risk free investments, interest rates are generally very low. Interest rates on government securities are termed as Risk Free Interest Rate for that country.

Interest rate of other securities like Bank Fixed Deposits, Corporate Fixed Deposits, Corporate Debentures etc. are higher than the risk free interest rate. Difference between risk free interest rate and interest on a particular security is termed as Risk Premium. Risk premium is the premium you are getting for taking higher risk.

Generally, it is not possible for retail investors to directly invest in Government Securites as the investment limit is quite high (Rs. 5 Crores). Hence, practically Gilt Funds are the only options through which a retail investor can invest in Government Securities.

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